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Signs of life in the SEC case against Nacchio, other
ex-Qwest execs Greg Avery January 11, 2010 The
Securities and Exchange Commission’s civil case against Joseph
Nacchio and four other former Qwest executives revs up this week
in Lawyers for the SEC and the defendants will
vet three potential expert financial witnesses in hearings
scheduled Tuesday, Wednesday and Thursday in Judge Marcia
Krieger’s U.S. District Court room two blocks from Qwest
headquarters. The case puts someone beside Nacchio, the
ex-CEO and chairman, in the legal spotlight over Qwest’s 2001
financial collapse for the first time in years. A whole new era of corporate financial scandal
and the resulting recession has passed since regulators first
filed suit over Qwest’s collapse and admission of overstating
$2.5 billion in revenue. The SEC and the other defendants — former
Qwest CFO Robert Woodruff, ex-COO Afshin Mohebbi and former
financial reporting chiefs James Kozlowski and Frank Noyes —
have been stuck with legal paper parrying since 2005, waiting
for Nacchio’s insider trading criminal prosecution to be
resolved. Here’s a refresher summary of the case: Qwest divulged in separate disclosures in the
last half of 2001 that its double-digit revenue growth, which
defied gravity while all else in telecom went bust, had relied
on one-time fiber optic capacity swaps and one-off equipment
sales. It also, the SEC says, ensured that upstart Qwest was
able to buy the Baby Bell across town, US West, in 2000. The SEC complaint says the revelations about
how much Qwest relied on one-time revenue obliterated $91
billion in the telecom’s market capitalization and gutted
investor, employee and retiree holdings. Regulators called it
fraud, given the degree to which Qwest disguised and evaded
disclosing its reliance on one-time revenue. It sued Nacchio, Woodruff, Mohebbi, Kozlowski
and Noyes for participating in the swaps and in public
pronouncements that made it seem as if most of Qwest’s revenue
growth was driven by sales of broadband services that generate
recurring revenue. Robin Szeliga, another former Qwest CFO,
originally faced the SEC lawsuit, too, but she settled and
agreed to pay the SEC $577,052 — about half what she’d been
estimated to have earned over two years. The SEC seeks to get the remaining executives
to give back about $300 million in “ill-gotten gains” —
salaries, stock, money from exercised stock options and the
wealth produced by their receipt of stock in vendors’ companies
through side deals that weren’t disclosed to Qwest shareholders. Nacchio’s share is $216.4 million he made
between 1999 and 2001. A jury convicted Nacchio on 19 counts insider
trading felonies in 2007. Nacchio’s attorneys fought the verdict
in a federal appeals court (twice) and tried unsuccessfully to
get it overturned by the U. S. Supreme Court. Nacchio
reported to federal prison camp in Judge Krieger is presiding over a resentencing
of Nacchio because one appeal found the original trial judge,
Edward Nottingham, erred in calculating the sentence of six
years prison, $19 million in fines and $52 million in
forfeiture. Nacchio’s criminal conviction seems secure,
even if how long he’s locked up and how much money he repays is
ultimately changed. That frees the SEC’s case to inch closer to
trial in coming weeks — nine years after Qwest’s implosion.
Greg Avery — aerospace, technology and
telecommunications reporter for the
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